"This significant drop in the Index gives us empirical data of what many have long suspected," said Carl Steidtmann, chief economist with Deloitte Research and author of the monthly index. "The current economic downturn is as significant as anything we have seen since the last recession."
The Index, comprising four components - tax burden, initial unemployment claims, real wages and real home prices - fell to 1.3 percent, from a revised gain of 1.51 percent a month ago.
"With federal income tax rebate checks now hitting consumer's pocketbooks, retailers are aggressively courting consumers to get their share of those dollars," said Stacy Janiak, the U.S. retail sector leader at Deloitte. "It is a full-fledged battle right now that is only going to get more fierce as gas prices continue to rise toward their typical Memorial Day peak. Retailers are expected to offer substantive incentives for rebate check usage and find creative ways to merchandise the shelves and attract the consumer, who is increasingly focused on buying just the basics."
Highlights of the index include:
- Tax Burden: The tax burden is expected to continue to fall with slowing income growth. This remains the only positive factor supporting consumer spending in the months ahead.
- Initial Unemployment Claims: Unemployment claims increased 16.1 percent in March, compared with last year.
- Real Wages: Real wage growth was negative. The decrease was marginally lower compared to the previous month. This comes at a time when personal income increased 4.4 percent in the first quarter of 2008 compared to a year ago. Rising food and energy prices continue to be a concern for consumer spending.
- Real Home Prices: The fall in house prices intensified further with house prices falling nearly 12 percent compared with a year ago. The home market shows no sign of bottoming out with residential spending falling 26.7 percent in the first quarter of 2008. vs. the first quarter of 2007
